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Michele Lerner, a contributing writer to The Motley Fool, has been writing about personal finance and real estate for more than two decades. Her work has been published in a wide range of publications and websites including Bankrate, The Washington Post, Insurance.com, HSH.com, REIT magazine, National Real Estate Investor magazine, The Washington Times, Urban Land magazine, Investopedia, and in numerous Realtor association publications. She is the author of “HOMEBUYING: Tough Times, First Time, Any Time.”

While parents love to look for signs that their kids are musical prodigies or potential Olympic athletes, many don't know how to recognize the signs that their teen and young adult offspring are floundering when it comes to money management skills. Dealing with your kids' disasters is one of the downsides of being a parent, yet the more proactive you are in watching for signs of potential financial failure, the easier it will be to turn around the situation.

A parent's work is never done. Throughout your offspring's life -- from childhood, the teen years, and into their 20s -- there are times you'll need to step in to educate your kids about money matters big and small. It can be a lot of work, but the payoff is worth it when you know you've done your best to raise a financially savvy person with a strong work ethic and sense of responsibility.

"We're living in the 'now' generation, with kids wanting everything now and a lot of parents giving in," says Dan White, a certified financial planner with Dan White and Associates in Glenn Mills, Pennsylvania. But there's a difference between simply wanting the shiny new thing because it's out there and desperately needing the shiny new thing because not having it has larger consequences in your teen's mind.

"Sometimes teens feel that if they don't have the latest and greatest gadget, they won't be popular or fit in," says Kimberly Foss, a certified financial planner and president of Empyrion Wealth Management in Roseville, California. "This is reflective of a deeper issue of self-worth and self-esteem."

The prevention: Foss recommends asking in a calm, non-emotional environment about the reasons they made the purchases and listening to the response and watching the body language. Counseling may be in order if you feel your teen is compensating for a bigger emotional issue, Foss says.

If it's just a case of your teen wanting the next newest thing, White recommends establishing an allowance and saying no to your kids when they ask for more.

According to a recent Gallup Poll, 68 percent of American adults do not have a detailed monthly household budget. Kids who don't see their parents paying attention to the family's inflows and outflows are going to have to cram in later life to learn those important lessons -- in real time, with their own real money.

The prevention: Kids should learn the concept of budgeting for life's expenses before they go to college, advises Ric Runestad, owner of Runestad Financial in Fort Wayne, Indiana. Establish your own budget and share it with your kids. Have your children make their own budget for things like vacations and summer camp.

"The odds of winning the lottery is somewhere around 1 in 259 million," says Gregg Murset, a certified financial planner and CEO of MyJobChart.com in Scottsdale, Arizona. "If your child thinks this is a good way to plan for the future, just start planning now to have them living with you during your retirement."

The prevention: Make sure you're quickly correcting your kids whenever they mention a lottery ticket or windfall. (Search "odds of winning the lottery" for even more colorful examples.) Explain the importance of saving and working hard to fulfill their future dreams.

It's one thing if your child asks to borrow a few dollars to buy something and pays it back immediately when you get home. "However, if a child starts to treat their parents as a payday loan service, then the parents should act as a payday loan service by charging expensive rates of interest," Runestad says.

The prevention: Reinforce the "If you want it now, you have to pay for it now" behavior by instituting a realistic interest rate on borrowed money. Take a cue from the credit card industry and set it around 15 percent. Run the math with your child and show how much more an item costs in the long run when it is paid for with borrowed dollars.

Does your child assume (unrealistically) that he or she will replicate your lifestyle when it's time to be on their own? Here, again, there may be a communication breakdown. "It's important for parents to assess their own behavior and guide the child in the right financial direction," says Eric Johnson, principal of Signature, a wealth management advisor in Charlottesville, Virginia. "If they're spending lavishly and telling their children to save, there will be a large disconnect in the child being able to form solid monetary values on their own."

The prevention: Talk early and often about your money values and reinforce the idea that your wealth may not be a signal of your child's future lifestyle.

"Children can be every bit as gullible as adults when it comes to trying to help someone out who really is just taking advantage of them," says Runestad. "Everyone wants to be liked, and we all have times we need someone to lend us some money. However, any time money is lent it should be under very stringent requirements."

The prevention: You can't always know about your child's private financial dealings. But you can instill in them standard expectations when it comes to money issues by consistently following certain money rules when they come up at home. So, when you lend money to your child, remind them that you are not in the debt forgiveness business and you expect full repayment of the loan by a certain date. Consider drawing up a standard fill-in-the-blank lending document for all parties to sign.

"While piggy banks can be a cute way for a youngster to learn about nickels and dimes, what purpose do they serve after that?" asks Murset. "If your kids are old enough to earn money, they're old enough for their own bank account."

The prevention: Open a bank account with your child, walk them through the process of making deposits, teach them about online banking and earning interest. There's no better education about the adult world of finances than actual hands-on experience with the products they'll be using for the rest of their lives.

"Some kids think that credit cards represent free money that banks give away for people to buy things," says Murset. "Until your children have a clear understanding of how cash advances work and what interest rates, penalties and fees mean, they shouldn't have one."

The prevention: Teach your kids the difference between a debit card and a credit card as you use them. When they are old enough, get them a pre-paid credit card. Fund it with their allowance or savings, and give them room to make their own mistakes (such as running out of money because they weren't keeping track of the balance). Better that they learn the lessons of proper plastic usage under your watch.

If your kids spend more time watching TV or playing video games than helping around the house, they're not developing a sense of responsibility, says Murset.

"Get your children off the couch and out of their rooms to do their share around the house," he says. "Besides building a daily routine, they'll develop a good work ethic."

The prevention: Not all chores should be equated with payment. Helping around the house is simply part of what family members do. However, certain chores and work above and beyond the basics can be linked to extra payments. As your kids develop a work ethic, they'll start to learn that doing a good job and taking on more work can be satifying both financially and emotionally.

"Young adults are made to believe that once they graduate college they'll be able to pay off their student loans quickly," says White. "That couldn't be further from the truth. An average student takes a minimum of 10 years to pay off an undergraduate degree."

The prevention: Together, as a family, go over all of the costs of higher education -- everything from tuition to room and board, meals, gas money, and airplane tickets home for the holidays. Together, discuss ways to cut costs. And make sure your kids are exploring every opportunity and avenue for covering college expenses before they commit to a large loan, says White.

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Bryan

WOW, this article is such a load of .... it's not even funny. You think counseling may be needed for your kid because he/she wants shiny new things?!?! You're charging your kids interest on their allowance?!? Its not the kids who need counseling, its the parents.

Its people like this writer and all the other contributors that are raising the spoiled brats that expect everything and don't see the consequences of their actions... Kids are smart, they learn quickly they can just 'talk it over' and get another chance, despite what they do.

No means No. If you fall, pick yourself up and try again. If you want something new you need to earn it or work harder to earn it. Everyone Does Not Get A Trophy!

You keep talking and I look forward to the day your kids is working for mine because you have never taught your kid that everyone isn't a winner. If they want to succeed you have to work hard and keep trying despite how many times you fail.

They're gonna do the wrong thing, fall, cry, fail and throw tantrums when they don't get what they want. YOU need to make the hard decisions they don't want to hear and deal with the consequences as thew grow.

money, drugs, alcohol, shopping, gambling, and any hobby.... It is all about what Socrates had to say.... Know thyself and moderation.

since the subject here is money, there is extremes and there is moderation.... Extreme money management is blowing everything you earn like a crack ***** and being in debt 10 feet above your eyeballs. My sister in law blows everything she earns on craft beer at the bar and buying clothes on the Magnificent Mile in Chicago.. No kids, $60,000 a year income, and she still drives a crappy old Mazda econo car because of her spending habits.

Flip to the other way on the money extremism.... Too stingy to enjoy life and saving for the world's most expensive funeral. My buddy Dennis is too cheap to pay for his son to play little league baseball. Won't let his wife drive 4 miles to church on Sundays because it will burn off valuable miles from the vehicle that he is trying to make last forever. Dennis has never taken his child to an amusement park, never gone to a zoo, never saw a movie at a theater.. Doesn't even rent movies, just borrows them from the library. Dennis' wife has a growth near her pituitary gland and will need surgery, the medical community is raping Dennis by having a dozen different tests done.. Dennis is angrier than a badger with it's nuts covered in fire ants and is very hateful...

Somewhere in the middle is a happy balance... I have been on both money extremes in my life. I blew my first inheritance on stupid crap like boats, cars, traveling, etc.. when I wound up broke again, I was very ashamed and went to the other extreme. Spent years learning abut money. Too cheap to buy anything off the rack. Like Dennis, didn't want to put miles on my car because I wanted to make that car last as long as possible. Eventually, I found the middle ground where I don't spend my money on stupid crap and get as much value out of my purchases as possible...

What a lot of people don't realize, is that spending money can be an investment. Take for example clothing... Buying nice clothing can help you get into higher social circles, land a better job by letting people know you are successful with what you have, etc.... but the stereotypical housewife that buys clothing everyday because she is bored is where things go south.

Same goes for a car... a nice car is fine.. one that won't break down, etc... but if you are jacking up your truck and putting every known accessory on it.. chances are, you are taking things too far. I used a system of calculating miles divided by purchase price to get the most value out of my cars... A car isn't something I use to create an identity for myself, it also isn't something I believe I should apply financial management to when only using up the miles when I have to. Because I get a lot of value out of my cars, I can put miles on them without going broke.

when it comes to money.... it is wise to be conservative... but you also have to take risks for reward.

I really didn't do any of those things when I was a kid. However, I seem to be doing all of the things mentioned on that list as an adult. Money isn't everything and life is meant for living, that's what the article will never say, but is really the most important lesson in life.